It should always be possible to use the ControlBlock together with any USB controller. You would just need to run the input configuration for each device on EmulationStation. All controller types should be recognised and working afterwards.
Regarding your question about the need for an additional keyboard: What you would need to do is to configure the emulators such that you have full control with your arcade / gamepad controls only. That should be possible.
That looks like it would do the trick, but it also looks like a daunting endeavor. I'd have to modify the design to work in my case with a full size NES case. All those mini jump wires between contacts is going to suck for me too. Plus I have no idea what those other parts (diode, resistor, capacitor, etc) are used for. I wish I knew more about electronic circuits. That's why I liked the Mausberry circuit so much, plug in, put the wires where they need to go, and you're done (after getting the script obviously). The PowerBlock was useful too because you just attach it to the GPIO pins. I still think doing something like the Mausberry would work best, but I'm not sure if they can support the amps. Waiting for them to reply.
What's the switch' part number? Where did you get it from? Maybe a little research can show how the switch LED is connected internally.
When you mentioned LED, is that the LED connected to the Contolblock or the LED on the switch?
If you power the RPi using the microUSB of the RPi itself you will loose the power switch and reset functions on the Powerblock. When the Powerblock is used as designed using its microUSB connector, power to the RPi is controlled by the Powerblock and routed to the Power and Ground pins of the GPIO connector. When the RPi is booted up the driver and control service of the Powerblock will initialy interrogate the status of the Powerblock board and intitiate the boot up process. If the microUSB on the RPi is used to as power source, all of this is bypassed and the RPi will power up as if the Powerblock does not exist.
The only way to use microUSB on th RPi together with the Powerblock is to isolate the RPi's micrUSB connections from the RPi itself (cut the traces from the RPi) and rewire them to the Powerblock's microUSB connector. Doing so is a mute, waste of time, potentially damaging to the RPi exercise.